SHAWN HAGEDORN: Aligning SA with tomorrow’s possibilities

Hosting the Group of 20 (G20) should provoke exploration of emerging opportunities for SA’s young adults to integrate into the global economy.

Despite having averaged nearly 10% annual growth over more than four decades, being the world’s dominant manufacturer and having a shrinking workforce, China’s youth unemployment is more than 20%. Yet many insist SA can meaningfully mitigate youth unemployment by sustaining 4% or 5% growth. They underplay how global trends and investment returns shape development.

Pursuing investment-led growth suggests that access to capital is a core constraint, but it isn’t. Our modest capacity to mobilise capital traces to policies that entrench low growth — if not stagnation or decline. Meanwhile, many of the world’s most respected investment gurus, most recently Edward Yardeni, argue that China is uninvestable.

Household prosperity

As neither China’s economy nor ours is designed to broaden household prosperity, both must pursue export-led growth. By prioritising competitiveness and value-added exporting, China has created hundreds of millions of jobs. SA relies on commodity exports, but even strong commodity demand can’t directly surge jobs or trigger meaningful multiplier effects.

Our consumer purchasing power is constrained by excessive reliance on expensive debt being common among lower-income households. That a vast portion of our population is reliant on grants or government pay cheques further limits the spread of prosperity.

For a quarter of a millennium successive American generations became more productive and wealthier. During the last generation, US purchasing power fuelled much Asian growth. Conversely, the patronage-grounded politics that emerged from our 1990s transition favour redistribution and isolation.

As China’s consumers still have insufficient purchasing power to sustain that country’s growth, Beijing must run the world’s largest trade surplus to maintain growth momentum. As the US runs the world’s largest trade deficit, President Donald Trump seeks to use tariffs to deter China’s trade practices and its anti-Western and regional belligerence. 

Adding value

As with other countries, SA’s future competitiveness is approximated by the percentage of its young adults who add value to exports. We score dismally on this scale due mostly to redistribution and localisation policies. The extraordinary rise of Asia, which reset global economics and geopolitics, wasn’t fuelled by Asians selling to Asians.

Rather, supply chains connected Western consumers with Asian workers. SA can’t sustain high growth through targeting domestic and regional markets as both suffer from woefully deficient purchasing capacity.

Since apartheid ended globalisation transformed the many Asian nations, which flourished through adding value to Western imports. As the ANC rejects this era’s success formula, half of SA’s young adults can’t escape poverty.

SA’s modest pace of capital mobilisation aligns with our economy’s meagre growth trajectory. For a new mall to flourish, it must take market share from others. Our ultra-elevated youth unemployment and low domestic growth are mutually reinforcing. To achieve and sustain high growth our young adults must add value to exports. 

Our apartheid-to-Mandela transition was internationally celebrated as the Cold War ended and the Soviet Union expired. Today, the anti-Western axis of Russia, China and Iran have been revealed to be far weaker than they were perceived to be just three years ago. These countries are in no position to create jobs in SA, whereas Western countries, particularly the US, fund the creation of many millions of jobs in various countries. 

But the “funding” aspect that is most critical isn’t about investing. The US can sensibly sustain enormous trade deficits while wealthy countries have insufficient young workers and commerce becomes more disruptive and digitally orientated. Meanwhile, SA has entrenched the world’s most severe youth unemployment crisis.

Political and technological transitions are even more disruptive when they are amplified by abrupt demographic shifts. Before long this region will account for 40% of the world’s births. Our region’s rise through global integration would provide more human interactions to offset ubiquitous AI.

A country hosting the G20 that lacks solutions to its extreme youth unemployment should seek to develop solutions with member nations.

• Hagedorn (@shawnhagedorn) is an independent strategy adviser.